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Goldman's Concern Over The Economy Is Growing

Tyler Durden's picture





 

Goldman's go to bull, Jim O'Neill, starting to get decidedly bearish. Also, as if economic commentary interspersed with soccer from Janjuah wasn't enough, O'Neill is here to offer the Red Devil perspective.

Exciting with Risks......and Worried........

Week 3 of 2010 comes to an end,……not a pleasant one.   Anyhow, in the three weeks so far, we have witnessed evidence of the things that support why our views are "exciting" and, unfortunately, more important ones of why " with risks" has been there. Of possible interest;

1. BRICs…………For those of you that often doubt much of the data from China and elsewhere in " BRICland", the FT has kindly being doing a special all week long on the whole theme, with lots of colourful local stories. Over the weekend, if you have some time, take a gander…

2. China.

The data this week, including news of their remarkable success of achieving 8.7pct GDP growth for 2009, which continues to broadly highlight the remarkable divergence between the C , most of the rest of the BRICs, and large EM , and the so-called developed West. On balance , the data reported for December was slightly softer than expected, but in the general scheme of things, it was all remarkably strong. And as discussed in the media, we count the weeks until China now overtakes Japan to become the world's number 2.

I have been out and about this week, including brief trips to Frankfurt and Brussels , as eell as meeting clients in and around London. I have met with more companies who have large business expansion taking place in China, and without exception, they all have talked about their own anecdotes to back up the flavour of the reported data.

The continued "new issue" is of course, inflation, and this week's reported rise in PPI and CPI , on top of the strong data, has resulted in more concerns about fresh specific and additional steps to tighten policy. This is almost definitely coming, and it might not "feel" good when it comes. However, and I am already starting to get this feeling, people shouldn’t go overboard about this. China wants to slow things down a touch, reduce the risk of a significant pickup in inflation, and they are pretty likely to succeed. So while Chinese related markets have probably got further to correct, I can't see a real "bear market" as such. Indeed, the general wide 2,600-3,400 for the A -share market that I have believed in since the late Summer 2009 peak looks set to prevail to me.

3. Coincident and lead indicators. We have had some quite mixed data again this week, with a couple of new , slightly positive surprises in Japan and Europe ( after disappointments at the margin previously ) but in terms of new information, and high frequency, and as a key part of our own global leading indicator, the GLI, the Philly Fed disappointed yesterday. Linked to this, while our year on year Advanced GLI for January has moved back into clear positive territory- 1.2pct-, the momentum is showing signs of slowing. The Euro area PMIs hint at the same also..

4. Policy in Europe. As I mentioned , I spent yesterday in Brussels, and left feeling quite disappointed about policy "imagination" even by the standards of past thinking about such issues re Europe. I get the impression that the new appointments in Brussels are not going to be taking us anywhere, and I don’t think any are equipped to deal with new shocks, or frankly, the Greek issue. I , therefore continue to suspect that the CDS could widen out to levels way beyond much being generally banded about. On top of everything else, what incentive do the big guys have to stop it? On top of making the " Club Med" countries think more seriously about the underlying issues, the Euro is now dropping because of this also, which of course, is an aspect that pleases EU and ECB policymakers……..better than anything else they must have spent endless hours thinking about ways to weaken the Euro….

5. Mood in Germany? After having a dinner with a group of leading CEO's and CFO's, and seeing lots of investors, I am not really sure. Lots of gloom about Russia stood out, but on everything else, people seemed very mixed.

6. Washington and US financial conditions…

Which leaves me to this topic. If the "shock " of the UK supertax wasn’t enough, now we have out of the blue, Tall Paul Volcker's ideas suddenly appearing as US "policy" on banks. There are an enormous number of policy issues raised by this development, such as ; will the proposals ever come to pass, should they be seen in the context of the Massachusetts development, who is running economic and financial policy, etc and plenty more, that I don’t think it is appropriate for me to write about , at least in this kind of format. But the core issue to me, is as follows;

a/ this is a second major, and much bigger "anti current practises" surprise to the financial system since mid December, and at least for me, both have been quite a surprise, and completely at odds with the co-ordinated G20 flavour of much of late 2008 through most of 2009. How many more, such surprises, are coming?

b/ much more importantly than being surprised, what is this going to do to financial conditions? One would have thought policymakers would be eager to avoid an inadvertent tightening of financial conditions, given what happened in 2008 and the whole parallel with the initial recovery from 1929 before you know what………but the style in which both the UK, and now the US policies have appeared suggest that this is not at the forefront of thinking. I guess this latest development at least adds to the probability of our Fed Funds forecast being right, but ….

I have been thinking since the Summer, with some confidence that the upside risks to a US recovery were likely to keep re-appearing, but given both the political and policy events, and with this fresh major degree of uncertainty introduced to the financial markets, upside US risks are increasingly going to relate purely to one area, exports…

Last Friday , I had an interesting debate with an extremely well known bear , for the amusement of some hedge fund clients. If it would have been this morning, I would have found it much tougher to battle him………

7. United. And then, to top off such a fun week is this ongoing saga…………….Let's see if Rio can cheer us up tomorrow.

Thank God for the BRICs and Rooney…….

 


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Mon, 01/25/2010 - 12:43 | Link to Comment Escamillo
Escamillo's picture

Goldman Sachs guys talking about United:  I didn't know what Roy Keane meant about the "prawn sandwich crowd" at OT until now. 

Mon, 01/25/2010 - 12:54 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Roy sold his immortal soul when he signed for United - he should have went to Liverpool , the lower pay he would have received would be a form of papal indulgence

Mon, 01/25/2010 - 13:40 | Link to Comment Escamillo
Escamillo's picture

I can't resist:  Roy Keane's finest moment, in the tunnel with Patrick Vieira.

http://www.youtube.com/watch?v=66ZikFp4o9Y&feature=related

 

Tue, 01/26/2010 - 23:16 | Link to Comment Anonymous
Mon, 01/25/2010 - 14:36 | Link to Comment Anonymous
Mon, 01/25/2010 - 15:33 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

LOL,  yeah the ones who look at United and just see $$$ signs everywhere!

Ticket prices, we could increase those!  Player transfers, who needs em!  Selling our best players?  Sure, if you will pay us a 10% premium we got a deal!

Rooney will soon be saying goodbye to Manchester, and hello Madrid...

Mon, 01/25/2010 - 12:47 | Link to Comment trav7777
trav7777's picture

Perhaps the market rally reflected the expectation that a huge rate cut and cheap money regime would cause economic growth again as it always had in the past...?

The mercilessly unrelenting nature of the bad numbers coming out may be close to achieving a collective point of recognition that earnings aren't going to grow into the current price levels

Mon, 01/25/2010 - 13:13 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

"The mercilessly unrelenting nature of the bad numbers coming out may be close to achieving a collective point of recognition that earnings aren't going to grow into the current price levels"

trav7777,

Agreed.

This whole thing, the last 6 months of the stock market rise, looked so much like the cart (the economy) was placed before the horse (business and consumer fundamentals), with the cart driver desperately hoping that if the cart drags the horse down the road a bit (juiced by a "liberal" money policy) the horse might just be inspired to gallop up front and take over the hauling duties.

Perception is reality in a leverage fiat currency environment and the hope was that of you could convince enough people all was well, "presto" all will be well. But at some point fundamentals must be dealt with.

Was the outcome ever in doubt when the entire policy was extend and pretend? Well, in reality it "worked" (I could argue it did not work except for a small sector of the population) many times before. The only difference this time was the scale, not the process.

I just don't see this ending well.

Tue, 01/26/2010 - 04:08 | Link to Comment Anonymous
Mon, 01/25/2010 - 13:56 | Link to Comment Daedal
Daedal's picture

The mercilessly unrelenting nature of the bad numbers coming out may be close to achieving a collective point of recognition that earnings aren't going to grow into the current price levels

No doubt. The problem is perception, which is manipulated via "better than expected" reports. I forget where I saw the following (Yahoo or Bloomberg), but there was a report of companies that beat analyst expectations.

Those that beat were colored green, and those that missed were red. I'd say 80% of the list 'beat' expectations, and I recall distinctly that Citi was part of that list, highlighted in Green. Meanwhile they lost almost $8 billion!

Once these illusory perceptions confront reality, a bloodbath in stock prices will ensue.

Mon, 01/25/2010 - 12:49 | Link to Comment Anonymous
Mon, 01/25/2010 - 15:21 | Link to Comment Anonymous
Mon, 01/25/2010 - 12:58 | Link to Comment bugs_
bugs_'s picture

Goldman about to go "hands off" - its not our market.

We didn't touch it last.  Who touched it last?

Mon, 01/25/2010 - 12:59 | Link to Comment Anonymous
Mon, 01/25/2010 - 13:00 | Link to Comment Anonymous
Mon, 01/25/2010 - 13:01 | Link to Comment waterdog
waterdog's picture

Is this guy twittering to himself, while sitting next to a Nigerian kid, waiting for their plane to leave the terminal?

 

Mon, 01/25/2010 - 13:06 | Link to Comment Anonymous
Mon, 01/25/2010 - 13:11 | Link to Comment miker
miker's picture

Geez, I can see why these Goldman guys need to makes so much money.  Such insightful babbling......I mean really.  And he gets to travel all over to cool places to smooze with the other high paid financial types.  Does anyone do an honest day's work for an honest day's pay anymore?

Mon, 01/25/2010 - 13:14 | Link to Comment Baron Robber
Baron Robber's picture

not wall street executives at TBTF banks. paying their lobbyists is the most exhausting thing they do.

Mon, 01/25/2010 - 13:30 | Link to Comment Gold...Bitches
Gold...Bitches's picture

Its all electronic these days with a click of the mouse and a couple million on its way.  Oh boy, I'd be exhausted too after that.  I think I need a few hundred million to do that job

Mon, 01/25/2010 - 13:12 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

Goldman is bearish? Time to load up as the economy will surprise all of them to the upside in the coming months.

Mon, 01/25/2010 - 13:14 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Leo you see the SUNNY side in everything

Mon, 01/25/2010 - 13:22 | Link to Comment BS Inc.
BS Inc.'s picture

Wait a second, the whole time they've been bullish (the entire point of this post being that they are turning bearish), you've also been bullish. Why weren't you bearish when they were bullish, if you're using them as a contrarian indicator, as your comment suggests?

Didn't the Greeks invent logic?

Mon, 01/25/2010 - 13:26 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Dork is confused now , I will lie down and do logic

Mon, 01/25/2010 - 14:53 | Link to Comment Busy-Body
Busy-Body's picture

Fundamentally speaking, no chance in hell.

QE/Extend & Pretend, quite possible.

Mon, 01/25/2010 - 15:00 | Link to Comment Anonymous
Mon, 01/25/2010 - 13:20 | Link to Comment gmak
gmak's picture

Maybe they should have lunch with Bill Miller to get that "Gosh it's good to juice the market" feeling back.

Mon, 01/25/2010 - 13:32 | Link to Comment Gold...Bitches
Gold...Bitches's picture

isnt it amazing what buying a few hundred million SPY's will do for the market?

Mon, 01/25/2010 - 14:04 | Link to Comment wang
wang's picture

more from Mr. O'Niel

earlier this AM on Bloomberg

http://www.bloomberg.com/avp/avp.htm?N=av&T=Goldman%27s%20O%27Neill%20Sa...

Mon, 01/25/2010 - 14:15 | Link to Comment Anonymous
Mon, 01/25/2010 - 14:16 | Link to Comment Anonymous
Mon, 01/25/2010 - 15:29 | Link to Comment Anonymous
Mon, 01/25/2010 - 16:51 | Link to Comment Dirtt
Dirtt's picture

Yes. And more and more tenants will be writing rent checks to guys speaking Chinese.

Mon, 01/25/2010 - 16:50 | Link to Comment Dirtt
Dirtt's picture

Can someone enlighten me as to the Rooney reference?  I know he's not laying bets for the Steelers.

Mon, 01/25/2010 - 17:02 | Link to Comment Dirtt
Dirtt's picture

Wayne...the footballer. Thanks. got it.

Mon, 01/25/2010 - 17:54 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

GS to short market (with good reason, market is over valued) until the inflation beast is too much for them to handle.  They had already shorted solars, nat gas, and commodities (they tried to short gold, silver, and oil, but that did not work out very well).  now they short everything else (see google as the starting point).  bears to come out of hiding for the next couple months.  then by april, hyper inflation will be setting in, and once the shorts subside the bottom will not hold any longer.

Mon, 01/25/2010 - 18:27 | Link to Comment pak
pak's picture

"but the style in which both the UK, and now the US policies have appeared.."

The limits on prop trading and taxation of bonuses (which they should've anyway paid to the taxpayers and Ben Shalom (in this order), not to themselves) are not part of what has historically been known as "financial conditions", unless of course Mr. O'Neill thinks his own "financial condition" and that of his colleagues are THE only thing that matters for global economy.

"better than anything else they must have spent endless hours thinking about ways to weaken the Euro"

So why should Trichet & Co. be referred to as a bunch of lame ducks, if things are working their way anyway?

Looking at the superficial character of analysis produced by the squid, I wonder why they need to publish this at all.

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